REIT Medalist Diversified REIT Announces New Preferred–Updated

Update–JDubs has noted this issue will trade right away on the NASDAQ–no OTC trading–starting later today and tomorrow.

New REIT Medalist Diversified REIT (MDRR) which trades at $3.76/shares has announced a new high yield preferred issue. This is a tiny company and potential investors need to do some deep due diligence.

The issue has been priced at 8% with a public offering price of $23 ($25 liquidation preference). While this pricing is rare there have been previous offerings at lower than liquidation preference before–so it is not unique.

The issue is tiny at 200,000 shares (plus another 30,000 for overeallotment).

The last time I saw an issue similar to this was when Wheeler REIT issued some preferred stock with a similar coupon at about $17.50 to purchase a property. If I recall correctly, the dividend did not even last for a year before the distribution was suspended. The financials for Medalist look absolutely horrible, plus the company is paying a dividend on the common at a rate of about 14% – even though they are clearly losing money from operations.

Grey, this is a solid AAA at well regarded Egan Jones; they had their top men from the Three Stooges rate this one. Seriously, Medalist (MDRR) has a minuscule market cap of about $16 million and wouldn’t know a profit of it bit them in the lip. Their financials are horrendous:
Interest Coverage
-1.16
Return on Assets %
-5.71
Return on Equity %
-22.21
Return on
Invested Capital %
-2.69
Net Margin %
-53.66
Ouch, ouch and more OUCH! You’d have more fun betting green on the roulette wheel…
Hard Pass, Nomad

Grid, I hope you are having an amazing trip and some of the casinos ask you to stop coming there because you took them for so much money! At the very least you should go visit the Pawn Stars guys, I saw that Rick opened a bar next door to his pawn store…
All the very best, Nomad

alpha8, if you watch most of my posts they are about toxic debt and the troubles it is currecausing and will definitely destroy portfolios/lives in the future. If I help one person here, then I’ve done my best to contribute properly. The reason for my precious metal(s) posts is to make people think of their asset base as not just some arbitrary digital illusion of wealth, but to consider REAL tangible assets (real estate, timberland, metals etc) that get away from the fiat US Dollar and are non-correlating assets toward these inflated markets (stock, bond, preferred).
Pure gold does not rust. Only gold alloys do so. You may have golden dreams. But if you go in the company of toxic people, you become “a gold alloy” and what that means is that you can rust at any time! ― Israelmore Ayivor
Nomad

Nomad, Thank you for your thoughtful and informative notes. It’s been fairly well-documented/proven at this point that an allocation to gold in one’s portfolio over longer periods of time reduces volatility and increases net yield – or in the case of gold; purchasing power. This is more evident currently due to the recent inversion of the UST10 to inflation; a particularly insidious example.

Being 61 though, I’m less inclined to buy gold as a hedge against loss of purchasing power for a few reasons. The first would be that it provides zero current income. Short of shaving some off from time to time to barter with, there’s little to do but wait for its eventual appreciation and cash-in or hand off to my heirs. There are alternatives for investors. In lieu of precious metals we’ve taken positions in hard assets over the years such as real estate which act as also act as an inflation hedge but also provide current income, tax advantages and a store of value. There’s also enough volatility in that sector to offer “below redemption value” purchases from time to time. In the last downturn we were able to buy properties at prices less than the cost to build them (below redemption value), not including the land value. They have since doubled in value and generated cumulative net cash flows in excess of acquisition cost. Precious metals would have provided the currency debasement hedge (less storage costs) but none of the other benefits.

I do agree with you that gold or some other proxy (such as hard assets) is a critical long-term component of most portfolios – or for anyone that wants to avoid potentially treading water. Also that declining credit spreads, a steadily increasing risk/reward ratio and inflation are eroding the real returns of many portfolios.

alpha8, thank you for sharing your interesting real estate investing story. I’d add that there is a real cost to carry (taxes, maintenance, insurance, time value of money) in that real estate if you have direct ownership. There was also someone that probably lost a substantial amount of money when you were able to buy their distress property off the forced scrap heap. Precious metal has no counter party risk, no cost to carry, a true hedge against a declining fiat currency (ask the folks in Venezuela), a true store of value that people have owned for millennium. There is always a ready market to sell ones gold or silver; I cannot say the same for someone’s real estate that they are desperate to sell. In fact, in some languages the word “silver” means money.
Without going to deep into the weeds, I urge everyone to do their own deep due diligence before investing and NEVER blindly take the advice of someone recommended a security on the internet; they probably do not have your best “interest” in mind…
Gold is a treasure, and he who possesses it does all he wishes to in this world, and succeeds in helping souls into paradise. – Christopher Columbus
Nomad

Nomad, All true of course, though I’d suggest staying within the dollar “bubble” (in U.S.) should mitigate many of those concerns. The Maduro diet so many of the Venezuealans are enduring is due to a complete economic breakdown brought upon them via their own ballot box. Sadly, I think they are now more interested in eating now rather than preserving wealth. Even gold cannot buy food that isn’t there. It’s a horrendous nightmare. Viva Juan Guaido.

I also agree with your prior posits re debt and it’s toxicity. We have no debt to service on our residential buildings. Therefore not needing currency, we will gladly accept gold as payment for rent if the dollars are worthless. As for the over-leveraged and under-reserved investors forced to sell their buildings, we will happily (again) occupy the other side of that transaction. Similar to all of us here loading up on preferreds in December 2018 as the over-leveraged or under-reserved bailed.

Ironic to your message, is that due directly to the Venezuela-leaning regulations and growing visible outcomes of those policies in our own state, we are in the process of liquidating all residential investment holdings here. So you and I are pulling on the same oar now, for if we had precious metals we wouldn’t need to do that.

Particuarily over longer terms, I agree gold can play a vaulable role. Just as important though, living beneath one’s means, staying debt-averse and holding inflation hedges such as hard assets can provide similar results while also providing immediate cash-flow benefits. For those who cannot make the commitment to hard assets such as res-income, a 10% position in gold has also been demonstrated to be a valuable stabilizing hedge to a fiat-based portfolio over longer terms.

alpha8, as I was reading your reply I thought to myself “this is an incredible post by alpha” and I hope investors take the timely and thoughtful information seriously. I too have been selling some of my rental real estate because of higher taxes and foolish regulations. I own 13 condos in New Jersey in Edgewater and Hoboken. The taxes in NJ are truly insane and I instructed my realtor in the area to list them for sale; this is the last year I want exposure to them as there are rumblings of rent controls. I bought these condos in a distress sale almost 2 decades ago and can’t believe many would want to buy these inflated bricks (and take the risk right now) in these areas.
In Latin we say Bonus fortuna cum eo…
Have a great weekend, Nomad

David, thank you for your question. First, note that if you sell a collectible in less than one year, it will be taxed as ordinary income. This could be advantageous if your bracket is less than 28%. Also, if you mean gold, diamonds, stamps, furniture, paintings etc. just how is anyone going to track that?
Smile, Nomad

Eyeballing a few of the metrics.. This would probably receive CCC credit rating equivalent… Actually less than that..
Basic cap structure (debt+pfds to assets; secured debt to assets) and operating performance (Net Debt / pick any operating profit metric; fixed coverage charge) all are very poor..